AMD/ATI, Where Is The Money? . . .

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Well, I guess this AMD-ATI talk wasn’t talk. 🙂

Understand that the problems with this deal are not technological, but financial.

This is like emptying your bank account to make the down payment on a new car you’re buying after you’ve been laid off. The issue is not whether or not a new car is a good idea, nor how good the car is. The issue is being able to pay for it.

Just for openers, to pay for this, AMD will borrow about $2.5 billion, issue shares worth about a billion, and raid their piggy bank for the rest.

To oversimplify, if AMD had closed this deal in February or March, or even April, that 57 million shares of stock would have been worth about a billion dollars more than it does today, which means AMD would have had to borrow a billion less.

A billion dollars is a lot of money. Effectively paying a billion (or about 20%) more for something than you would have paid four months ago isn’t exactly world-class financial management.

Conversely, this price war isn’t going to last forever, either. Twelve-eighteen months from now, it will probably be over. With some new processors, odds are AMD stock price will be higher than it is today.

It is very, very difficult to see any big advantage AMD would gain over the next twelve-eighteen months from buying the company as opposed to simply partnering with them.

Fabs: Show Me The Money

AMD still needs to spend a lot of money to get Fab 36 to full production. They’ll need to spend even more to start updating Fab 30. Let’s not even talk about a new fab in New York State.

Price tag in the next eighteen months? Oh, about $3 billion.

Some serious folks already have expressed grave doubts AMD could pay for this out of revenues like they said they could.

Given the price war we’re going to see for at least the next few quarters, this is hardly unreasonable.

Is this the time to empty the piggie bank and take out a big loan?

AMD will have a webcast starting at 8 AM EDT.

They’ll have a lot of explaining to do.

P.S. The AMD/ATI conference call has just ended. In a nutshell, this is a long-term move. AMD seems to be especially interested
in integrating CPUs and GPUs, mostly for non-PCs. In the shorter term, it seems that AMD wants to be able to offer platform solutions just like Intel, and while
they won’t throw people like nVidia out, eventually, third-party suppliers will be frozen out. While AMD won’t stop ATI from offering Intel-compatible chipsets, no one expects
Intel to tolerate that very long.

Again, the issue here is money (more precisely, lack of it), not any problems with the concept technologically, and most analysts asking questions were concerned about the finances.

Ed


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